Shares of apparel retailer Shopper's Stop have surged over 5 times from its COVID lows, outperforming all its peers in this period. A major reason for this recovery in the stock was the change in leadership.
After Venu Nair, former CEO of Tata Group's Westside, took the reins at Shopper's Stop post COVID 2020, the growth in this apparel stock is unparalleled. In comparison, Tata Group's Trent has advanced 2 times and ABFRL, which operates Pantaloons, has risen 1.5 times.
Shopper's Stop has surged as much as 417 percent to ₹645 currently from its COVID low of ₹124, hit in May 2020. Further, sweetening the rally, the stock hit its record high of ₹819 in October last year, up 560 percent from its COVID lows, however, it has been consolidating since then.
While the stock has risen 82 percent in the last 1 year, 2023 has not been very great for the retailer, with the stock falling nearly 10 percent YTD.
December 2023 was a mixed quarter for the consumer discretionary sector with branded apparel and footwear companies witnessing a slowdown in consumption post the festive season, thereby impacting same-store sales.
In Q3, the firm reported an 18.86 percent decline in consolidated net profit at ₹62.74 crore versus ₹77.32 crore in the same period last fiscal. Its consolidated revenue from operations during the quarter under review rose over 18 percent to ₹1,137.07 crore as against ₹958.11 crore in the same period a year ago.
Total expenses in the third quarter were higher at ₹1,075.66 crore as compared to ₹905.14 crore in the corresponding period of the previous year.
"The growth momentum continued from the second quarter, tapering down a little after Diwali. Customer sentiments remain largely buoyant due to the prolonged festive and wedding season demand," Shoppers Stop Managing Director and CEO Venu Nair said.
However, brokerages have contradicting views on the apparel stock. While ICICI Securities upgraded the stock to ‘buy’ from ‘add’ post its Q3 earnings, HDFC Securities has retained its ‘sell’ call on the retailer.
"Shoppers Stop continues to deliver on all key growth vectors. Achievement of the highest-ever operating margin at 9 percent is encouraging. This has been possible due to improvements in revenue growth, operating leverage, and efficient cost structure. Its foray into the distribution of international beauty brands with L’Oreal, Clarins and Earthi is an incremental positive as this will likely help the firm to add strength in a segment where it enjoys a competitive moat. We expect the firm to accelerate retail expansion in tier 2-3-4 cities, led by success in private label brands," said ICICI Securities.
The brokerage believes that the firm presents a turnaround opportunity. Under the guidance of new management, the company has been able to (1) enhance focus towards private label brands, (2) improve departmental store throughput (focus on the right location and optimum store size), (3) drive growth in the beauty segment through SKU enhancement and distribution, (4) have category extensions (in loungewear, athleisure, innerwear, etc.).
Sharekhan is also bullish on the stock. The brokerage stated that Shoppers Stop delivered the sixth consecutive quarter of strong revenue growth with improvement in profitability. The company's strategic pillars continued to deliver robust performance and the momentum is expected to sustain with the upcoming festive and wedding season, said Sharekhan. The management is eyeing revenue to double over the next five years, while it expects the EBIDTA margin to expand by 400 bps.
"Thus, Shoppers Stop is transforming itself into a consistent growth story in the retail space with a strong focus on strengthening its balance sheet. However, Shoppers Stop stock price has run up by 44 percent in the last three months and current valuations of 14.7x and 12x its FY2023E/24E EV/EBITDA factor in the near-term earnings growth prospects. We maintain our Neutral stance on the stock with a potential upside of 24 percent from current levels and wait for a better entry point to enter the stock," the brokerage has said. It has a target price of ₹794 for the stock.
However, HDFC Securities has a 'sell' call on the stock with a target price of ₹460, implying a downside of 28 percent.
"The company's scale recovery and aggressive focus on store expansion and assortment management are certainly encouraging. However, long-term risks of business relevance/longevity remain as the company directly contends with deep-pocketed e-tailers. Hence, while we revise our FY24/25 EBITDA estimates upwards by 11/9 percent respectively to account for higher productivity, we maintain our SELL recommendation," explained HDFC.
The brokerage also noted that while bill cuts/stores are normalising, they are yet to catch up to pre-pandemic levels. Growth remains realization-heavy and store openings remained healthy and momentum is likely to continue. Gross margin was largely flat despite an improving mix towards private labels at 40.9 percent, stated the brokerage. It revised FY24/45 EBITDA estimates upwards by 11/9 percent each to account for (1) higher store additions; (2) a higher private label portfolio; and (3) improved sales density-led profitability.
